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parents asset in income tax planning

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parents as an asset in tax planningMost of us end up paying more taxes even after exhausting all the sections of tax exemption, while few of us are aware that dependent parents could be a boon in tax planning. Here is how wise tax planning could save you from the tax demon–



Invest surplus in Parent’s Name

You can take an indirect approach to investing surplus funds by gifting it to your parents. Assuming both of your parents are Senior citizens without income, it means they enjoy Rs. 2.5 Lakh tax exemption each. You can invest up to 25 Lakhs through each of your parent for an investment return of up to 10%, which will be tax free in hands of your parents, which otherwise could have been taxed in your hand.


Senior Citizen Parents (60 Plus)

Salaried Individuals (30% Tax Bracket)

Amount Invested



Yearly Income (Per Parent)



Tax Liability



Tax Saving




It is evident from the above table that any individual within the tax bracket of 30% could save up to Rs. 1.5 lakh if he invests through parents. This saving could be bigger if your parents fall under “Super Senior Citizens” category, which enjoys an even higher tax free income of up to Rs. 5 Lakhs.


Keep your Parents insured

In many instances, people ignore buying insurance for their parent’s, as mostly they are already covered by their employer and otherwise they are reluctant to buy extra cover due to higher premiums for the elderly. However, this ignorance could make things critical if any of your parents become critically ill and is not sufficiently covered. You might have to bear the expenses out of your pocket then.


A better way to work out this situation is to buy a separate health insurance cover for your parents, which could sufficiently provide for medical emergencies and at the same time allow you to claim tax deduction of up to Rs. 15,000 or 20,000 (in case of Senior Citizens), under Section 80D. This exemption is over and above exemption for your own health premium.


Pay rent if living in parents’ house


You can claim house rent allowance even if you are residing in your parents’ home, which is registered in your parents’ name. It is recommended that you enter into a proper rental agreement with your parents and actually pay them rent each month. If your parents are retired and do not have any taxable income, then this rental income could be tax free in their hands depending upon the rent you agree to pay. It would be a cherry on top, if the house is jointly owned by your parent’s as income could be divided among them separately.


Sell shares to parents to offset loss


If you have kept loss making shares in your portfolio for over a year, then you can consider to sell them to your parents in an off market transaction. A long term capital loss on shares could be set off against long term gains if you sell the shares in an off market sale, which is a transaction without going through the exchange. Finding buyers off-market is difficult hence you could sell these shares to your parents in order to set off losses. The main criteria for this arrangement are, shares should be sold at the market price and mode of payment should be cheque.


The above methods are legitimate ways of tax reduction and come handy for tax saving. These smart strategies could cut down your tax outgo in a big way.


About the Author:

Reenika is a Certified Financial Planner and has more than 6 years of experience in the financial service industry. She can be reached at





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